Delhi Meetings Update :: Infrastructure Sector- Too many bumps in highway ::Centrum,

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��

Delhi Meetings Update

Infrastructure Sector

Too many bumps in highway sector

Meetings with road sector experts reveal tough times ahead with competition hurting developers’ profitability, risking projects’ financial closure. Cost of land acquisition is likely to shoot up for NHAI post LA Act and R&R Bill. We are cautious on these issues, as highlighted in our May’2011 road sector initiation report and advise investors to play the sector selectively. We maintain our numbers and ratings with a Buy on ITNL & Sadbhav Engg and a Hold on IRB.

m      Concerns over profitability – Aggressive competition, arranging debt for projects awarded and impact of LA & R&R bills were primary concerns at the highway conference. These factors affect sector dynamics, hitting profitable growth. We concur with industry’s concerns on profitability of recently awarded projects.

m      Play the sector carefully; prefer ITNL & Sadbhav – The roads sector is the only positive within the infrastructure sector, but it is plagued by intense competition that threatens the viability of projects. Hence, we advice investors to play the sector carefully. We came away from the IL&FS Transportation meet positive on the company’s strategy to generate returns from the roads sector. IL&FS Trans and Sadbhav Engg are our preferred picks in the infra space while we have a hold on IRB Infra. We also advice investors to take a look at Ashoka Buildcon (will be initiating soon)

IIFCL to play crucial role in infra funding

Pressure on banks on their ALM issues heightens the importance of IIFCL for Indian infrastructure funding. IIFCL officials said the move to convert IIFL into an NBFC was welcome. Recent news on an agreement with LIC & IDFC further propels IIFCL to take the driver’s seat for Infra funding. Long-term solution for Infrastructure funding is a vibrant Corporate Bond market.

DFCC progress on track

Dedicated Freight Corridor Corp (DFCC) project is the result of an MOU signed between Indian and Japanese governments. Ground level progress (document preparation, land acquisition, construction work, etc) is as per expectation. Ramping-up of DFCC will create opportunities for construction players in India. Sadbhav, Gammon and C&C are already qualified for one package of Western Corridor of Rewari to Vadodara (fin. bids in Oct).

Infra companies languish,  Punj Lloyd faces own problems

We met Ahluwalia Contracts and IL&FS Trans in the covered space and Punj Lloyd & C&C Constin the uncovered space. These companies admitted being plagued by tough macro issues including client liquidity, high competition and low order tendering, among others. However, Punj Lloyd, had issues of its own (Simon Carves, ONGC order litigation, etc), but these company specific issues appeared to be abating.

Thanks & Regards,